What does cost-plus pricing involve?

Cost-plus pricing involves setting a price by taking the cost of producing a product and adding a specific markup to ensure a profit margin. This method calculates the total costs involved in the production, including materials, labor, and overhead, and then determines a selling price by adding a predetermined percentage or fixed amount to these costs.

This approach is straightforward and provides a clear, simple way for businesses to ensure that they cover their costs while also achieving their desired profit level. It is commonly used because it is easy to compute and can help businesses maintain consistent pricing strategies without being overly influenced by market fluctuations or competitor prices.